Despite Losses, Yingli Stock Lifts on Revenue and Hope for New Debt Structure

Eric Wesoff is Editor-at-Large at Greentech Media. Prior to joining GTM, Eric Wesoff founded Sage Marketing Partners in 2000 to provide sales and marketing-consulting services to venture-capital firms and their portfolio companies in the alternative energy and telecommunications sectors. Mr. Wesoff has become a well-known, respected authority and speaker in these fields.

His expertise covers solar power, fuel cells, biofuels and advanced batteries. His strengths are in market research and analysis, business development and due diligence for investors. He frequently consults for energy startups and Silicon Valley's premier venture capitalists.

“In the long run, we will continue to reduce our debt exposure through a combination of alternative financing solutions in order to optimize our debt structure and improve our financial condition,” said Yingli CEO Liansheng Miao during Friday's earnings call, suggesting a path out of the cash dilemma facing China's second most poorly run solar module company.

As we reported last month, Yingli, the globe's second-largest solar panel manufacturer, issued a warning about its eroding financial health. GTM's Stephen Lacey suggested that Yingli had taken on more debt than it could handle as it expanded into polysilicon production and broadened its geographic reach. Lacey reported, "While other leading Chinese manufacturers Canadian Solar, JinkoSolar and Trina Solar are now posting profits, Yingli has lost money for three years in a row."

Yingli was the world's top module supplier in 2012 and 2013, a perch akin to holding the drum seat in Spinal Tap. Sharp, Q-Cells, and Suntech have also worn that crown. UBS suggests that "undercutting prices to gain brand recognition/share has shown to be the downfall of module manufacturers" looking to be the leading global supplier of this pernicious commodity.

The company reported its financial results late last week.

Yingli's first-quarter financials

Total net revenues for the quarter were $468.7 million, besting analyst expectations of $454 million.

Total PV module shipments were 754.2 megawatts in the first quarter of 2015, exceeding guidance -- compared to 939.2 megawatts in the previous quarter and 630.8 megawatts in the first quarter of last year. That total includes 27.5 megawatts of internal shipments to Yingli-developed projects. Yingli attributed the decrease in PV module shipments to seasonality in China's market.

Gross profit was $66.3 million, representing a gross margin of 14.1 percent, a decrease from last quarter and last year.

Net loss was $58.6 million, an increase compared to the first quarter of 2014.

Yingli's CEO noted "robust demand from Japan and emerging markets such as Southeast Asia and Latin America." In fact, shipments to Japan doubled compared to the first quarter of 2014. Shipments to emerging markets were 19 percent of total shipments in the first quarter.

Guidance for Q2 and 2015

Yingli's Q2 guidance is in the range of 720 megawatts to 750 megawatts; 40 megawatts to 60 megawatts of PV panels will be shipped to Yingli's downstream PV projects in the quarter.

Yingli expects its total 2015 PV module shipments to be approximately 3.6 gigawatts, pulled back from its March guidance of 3.6 gigawatts to 3.9 gigawatts. The company says 400 megawatts to 600 megawatts of PV modules will be shipped to its downstream PV projects over the course of this fiscal year.

"We also are pleased to report that, just as we paid in full the principal and interest on medium-term notes of RMB1.2 billion due in May 2015, we are confident to repay on time and in full another tranche of medium-term notes of RMB 1 billion due in October 2015," said the CEO on the company's recovery plans.

As we reported, longer term, the company will need a more consistent source of cash to service its $2 billion in debt, which some believe could come from project development. According to the company, "We also expect to sell roughly half of these 400 megawatts to 600 megawatts of solar projects to third parties in 2015, which will generate cash inflows and improve our balance sheet."

China's solar demand is expected to reach 14 gigawatts this year and 24 gigawatts in 2020, according to projections from GTM Research.

UBS suggests a sharp drop in polysilicon prices has had "a major impact on the long-term viability of module manufacturers with upstream poly capacity." The analysts at UBS also note that "there could be a supply shortage in 2H15, which would be enhanced if Yingli is to liquidate assets and cut production levels. As one of the top three global module suppliers, a significant cut in production would impact global supply, and could result in a short-term undersupply and slight uptick in module prices. Conversely, if Yingli is able to continue meeting short-term obligations but is still perceived to be unstable, [it] could have difficulty moving...product, and might have to revert to offering discounted prices in order to push supply and avoid holding inventory."